Earnings Estimates -how often are they right?

Discussion in 'Trading' started by optionsgirl, Oct 2, 2009.

  1. I gather from my lay experience that there are less surprises in earnings release. However, it is hard to come by with any statistical proof. I would think this is an old idea where one wants to construct a strategy if there was a significant bias towards earnings estimates being right or wrong when quarterly earnings are released... Perhaps it depends on the company itself? I would think some companies are more predictable than others. Anyone know of any book or site that elaborates about all this?
  2. what frickin planet are you on?74% of co's beat est's last qtr. you might ask wow how can 74% beat? easy its called a crooked ass game of massive collusion between analysts and co's to keep est's super low so all can beat and get there stock up. OH BY THE WAY LOST IN ALL THE HYPE OF LAST QTR'S SUPPOSEDLY GOOD EARNINGS WERE THEY WERE DOWN 27% YEAR OVER YEAR.
  3. NoDoji


    I believe you'll have great difficulty constructing a profitable strategy based on the probability of a company beating or missing earnings.

    The problem with this is that an earnings beat or miss does not predict the resulting price action. There are many factors that weigh on the market's reaction to an earnings report, mainly gleaned from the earnings conference call such as future earnings and revenue guidance, operating margins, the effect of current economic conditions on company strategies, etc.

    Then you also have to take into account the price action leading up to earnings. Are market expectations priced in already, meaning even an earnings beat may result in "buy the rumor, sell the news" price deflation? RIMM for example just beat earnings, but they'd run up so much prior to earnings and expectations were so high that anything less than stellar in the conference call resulted in a large selloff.

    I once bought a put on company because I saw 2 million shares sell off in 2 minutes the day before earnings so I assumed someone knew something. Plus price had run up a lot so I figured there would be a "sell the news" correction. They reported a triple play - earnings beat, revenue beat and upside guidance and price opened gapped up $4 a share from the previous day's close. Price pulled back a bit on the open and I sold my put at a very small loss, figuring it would continue to lose money as it was out of the money near expiration. Price then continued to fall non-stop the entire day, dropping $13 a share before finally finding support. Had I waited I would've had a $200 gain.

    I ended up making $670 on the bounce off support late that day, proving that the safest way to a profit is to trade the price action that follows earnings report after the market opens.
  4. maxpi


    You're kind of stupid and /or overreacting... in the past, maybe ten years back, companies got in big trouble for overestimating earnings estimates, I mean the CEO's could go to jail almost.. so they went to underestimating earnings to stay out of trouble.. for a while there some of the easiest money to be made was on earnings reports... it was like operating an ATM...
  5. lol what trouble did they get in? i've been doing this 35 years and i can't recall that. if they did fraudulent accounting or something illegal yes but not just overestimating earnings. ok lets say theres no collusionTHEN ANALSYTS SURE AS HELL ARE LOW BALLING ESTIMATES ON PURPOSE. how many times will you read the following statement? "analysts expect aapl to crush ests this qtr" if thats the case and they know it why don't they all raise ets? bingo when they beat big the stock runs.you see what happens when you miss,just ask rimm. its a matter of billions of $'s in mkt cap you keep ests low so you can beat.
  6. You're way off. A stock runs after a huge earnings beat because the market prices in those earnings, which were previously unpredicted. If an analyst raises estimates say a month before earnings report, the stock price will move up to reflect that increased estimate. For example:

    Analysts estimate earnings for Stock A to be $1.00. Earnings come out @ $1.20, the stock price moves up from $10.00 to $11.00 after the report.

    Analysts estimate earnings for Stock A to be $1.20. The stock price increases to $11.00 based on those estimates. Actual earnings come out @ $1.20 and the stock remains @ $11.00.

    Raising estimates only effects the timing of share price increase/decrease. If you are trying to play an earnings beat, look for stocks that have low ball earnings estimates. How you do that is anybody's guess.
  7. Interesting replies and all. 74 percent of companies beating estimates is pretty high. Where is the source of this number?